MARKET WATCH: Stronger dollar undercuts oil prices

Energy prices continued declining May 13 with crude down 1% in the New York futures market as the US dollar climbed against the yen and euro for the third consecutive session and the US Department of Commerce announced a surprise gain in April retail sales.

Commerce officials said US retail sales inched up 0.1% in April after falling 0.5% in March. Consensus among analysts was for continuing decline of 0.3%. The gain eased fears of an economic slowdown in this country and offset weakness in China's factory output growth.

“Natural gas inched higher, gaining 0.4% on the session due to colder weather in the Northeast,” said analysts in the Houston office of Raymond James & Associates Inc. The Oil Service Index dipped 0.3% while the SIG Oil Exploration & Production Index finished flat.

“In its medium-term outlook released this morning, the International Energy Agency cut its global demand estimates for the next 4 years and also predicted North America will provide 40% of new supply through 2018 vs. the Organization of Petroleum Exporting Countries’ 30% contribution,” they said. Crude and the broader market were lower in early trading May 14, while gas was higher.

IEA slightly increased its global oil demand forecast by 65,000 b/d to 90.6 million b/d due to revised German gas oil demand for fiscal 2012 but kept its global growth forecast unchanged at 795,000 b/d. “This is still above our demand forecast, which currently sits at 90.4 million b/d, largely due to a more bearish outlook for the Pacific region as we anticipate the return of Japanese nuclear power toward the end of the year and a more conservative forecast for North American demand patterns in the wake of a drawn out economic recovery,” Raymond James analysts said.

OPEC production jumped 200,000 b/d in April with increased output from Iraq. Non-OPEC production also increased as South Sudan resumed production. “IEA raised its non-OPEC supply forecast by 50,000 b/d to 54.5 million b/d (slightly below our 54.74 million b/d estimate) but kept annual growth flat at 1.1 million b/d due to revised historical data for US and Australian production,” said Raymond James analysts.

They said, “IEA's forecast remains too optimistic in our view, and the counterseasonal inventory builds continue to demonstrate why we believe oil is poised for a correction.”

Energy prices

The June contract for benchmark US sweet, light crudes lost 87¢ to $95.17/bbl May 13 on the New York Mercantile Exchange. The July contract dropped 88¢ to $95.41/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 87¢ to $95.17/bbl.

Heating oil for June delivery decreased 1.52¢ to $2.89/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 3.93¢ to $2.82/gal.

The June natural gas contract rose 1.5¢ to $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., retreated 2.6¢ to $3.88/MMbtu.

In London, the June IPE contract for North Sea Brent fell $1.09 to $102.82/bbl. The new front-month June contract for gas oil escalated $9 to $860.75/tonne.

The average price for OPEC's basket of 12 benchmark crudes dropped 60¢ to $100.47/bbl.